JohnH

Thanks for the confirmation. Presently the 990 is costing about $1,200, so the $4,500 figure would validate my estimate on the low side. (Incidentally, one might inquire as to why I haven't asked the CPA who prepares the 990 to give me a figure for the compilation. He would be the best source for an accurate estimate. I haven't overlooked that step, but there are reasons I don't want to pose the question to him until the board of directors has initially signed off on the concept and estimated cost)

Knowing that this question may fall into the "how much does it cost to build a house ?" category, I'm still posting it with a request for any comment. I'm putting together an analysis for a non-profit organization which is evaluating whether to join a national alliance. This is a small, established non-profit with total contribution receipts in the range of $250,000 per year. It is a valid non-profit with all activities being honest and operating on a highly ethical basis. There are no grants or other odd revenue sources, only contributions by individuals and some churches. Recordkeeping is in good order and there are no fancy year-end adjustments - it is virtually operating on a cash basis. There are some marginal benefits to joining the national alliance, but nothing significant. The main sticking point is that there is a requirement that Compilation statements be submitted annually. I'm thinking that a Compilation statement would probably cost a minimum of $3,000 - $5,000 per year, but this is simply a number I pulled from another source which may or may not be reliable. The organization is located in a major metropolitan area in a southern state, so I'm thinking the cost might be on the moderate side rather than "New York" or "California" prices, for example. Anyone care to take a shot at my $3,000 - $5,000 figure?

I have my personal accounts and much of our retirement account balances at our credit union. If they offered business accounts, I doubt I'd be dealing with a bank at all, except for maybe a sweep account.

Sure wish a couple of the banking behemoths here in Charlotte would get that message. So far, the two biggest ones are tone deaf. Unfortunately it seems to be working quite well for them.

Yes, a very good article. It got me thinking about my experience over the past few years. About 9-10 clients have died and I'm still preparing returns for the spouse now. I have 4 situations in which a rellative is bringing the client's info to me and I have copies of a durable POA on hand - 3 of them have full-blown dementia. I have another 2 or 3 for whom I have a POA in the file because although they still bring their info to me, they want me to keep an adult son or daughter informed about their tax affairs. My clients are getting old - good thing I'm staying young. The article makes a great suggestion about being aware of the signs that a client is slipping, and bringing up the topic early. I think age alone is a good enough excuse to bring it up, unless there is a spouse still living. Sometimes it can be uncomfortable, but usually they are willing to talk with their tax preparer more quickly than with a relative. Better to get the conversation under way before it is too late, even at the risk of losing a client if they take it the wrong way.

Yes, I would trust them completely to report the income.

There is no W-2 filing requirement if you pay the household employee less than $1,900. You are only required to refund them the withheld taxes and you both go on your merry way.

Late filing penalties are based on the tax due, so if there's no tax due then there is no penalty. If her income is clearly below the filing threshold then she has nothing to worry about. However, if there are any ambiguities and there is any chance that she might owe tax in any significant, then the SOL has never started and it never will until she files. Any chance she needed to file a FBAR?

OK, so I timed myself. Joint return with 3 dependents took an average of 1 min 27 seconds. Double that to 3 minutes per return, and it's a snap to enter 60 clients in 3 hours. So my estimate of 3 hours to enter AND cross-check was ambitious. So I'll double the total time to 6 hours on task. Allow for breaks, lunch, and a little time to gossip, and it's still a one-day task at most (if we double all the times). Another factor is that I did these entries by looking at paper and typing the info by hand. Using dual monitors, it's possible to "copy" and "paste" the names & addresses using the mouse right-click, which would speed things up. The only thing I'm not sure about is the fact that Drake allows me to tell it to skip directly to zip code after entering the street address. (Entering the zip code will autofill the city & state). I'm not sure if ATX does that. Aside from that, and the fact that Drake saves and moves from screen-to-screen instantaneously, I still think the task can be accomplished in ATX in a very short period of time - less than a day in the right hands. And by the "right hands", I'm talking about a good typist, not necessarily a tax preparer.

Cartridge in a bare tree

Last year I was surprised at how quickly I was able to input basic data on my clients. I switched from ATX to Drake in late January, and I didn't bother with conversion - just entered them on the fly. Using dual monitors, I never touched a piece of paper for the most part. Even though Drake runs circles around ATX in all other areas with respect to speed, I suspect this basic task would take about the same amount of time in either direction. Just for grins, I may time myself next week on a couple of typical returns. Now I'll jest - if someone were so slow that it took them 3 days to accomplish this task, I'd want to know that in the off season so I could fire them before I got really busy during Jan-Apr.

If they are easier returns as you say, then you could have someone input all 60 clients manually in about 3 hrs (including time for a second person to double-check the data).

I assumed you'd probably exhausted that one, but thought I'd mention it just in the interest of being thorough. Guess he could fire the guy, then hire him back after 3-1/2 years. Probably wouldn't make the employee too happy. On the flip side, I had a client one time who had to put money into a SEP for an employee whom he fired at mid-year after the guy stole from him. It was either give the thief a 15% bonus or deprive himself and his other employees of the benefits of the SEP that year. Talk about a client who was upset with his financial advisor and with me...

Thanks Joel for calling my attention to the error in my thinking on the $3K - I stand corrected. And thanks to you and OldJack for the opinions on the $12K. I appreciate both of your responses. This mirrors my experience in researching it thus far - there is no clear guidance and varying opinions. Another complication is the fact that this K-1 had $16K of COD income in the year of disposition. I've found conflicting information on whether the COD income (which is reported on Line 21 of the Form 1040) can be added to the cost basis in calculating the loss on disposition of the partnership interest.

He could exclude the employee for up to 3 years from first year of service and still use the SEP (unless he has already exhausted that option.)

Joel: I'm actually glad to hear you say "What difference does it make?" I'd like to see him get the benefit of the $12K, but I had been operating under the assumption that he was required to use it against other passive income in the year it is possible to do so. If he is allowed to choose not to use it and retain it in basis, that solves a problem. My thought process followed the $3K-per-year requirement for capital loss carryforwards, which must be used even if there is no tax benefit. But if this is a different set of rules, I'd be happy to include the $12K in basis if he can do so.

I ran into an odd situation today and would appreciate any input. Client has owned an interest in a limited partnership since 2007. (This is not a Publicly Traded Partnership). It lost money every year and finally closed its doors in 2013. In 2008, he reported significant income from disposition of a second limited partnership (also not a Publicly Traded Partnership). He could have offset about $12K of the accumulated losses from partnership #1 against the income from partnership #2, but he didn't do so because he thought the Publicly Traded Partnership rules applied. Since 2008 is a closed year, he can't amend. But we are discussing whether he can retain the $12K as a part of his passive losses (added to his basis in calculating the total loss on partnership #1). I don't think he can do it, but would like to ask if anyone has a differing opinion.

How true. Reminds me of a friend who tells of visiting his firefighter brother-in-law when a small fire erupted in the kitchen. After the B-I-L fumbled for a few panicky seconds with the fire extinguisher, my friend grabbed the extinguisher from him, pulled the safety pin, and doused the flames. When he started needling the B-I-L about his ineptness, the B-I-L blurted out "It's different when it's your own stuff ! " (Except I don't think he said "stuff")

You use the same EIN for Schedule C as the one you are using for Nanny tax. IRS wants any entity to only have one EIN. Look on page 10 of Pub 926. The TIP says: 　 You ordinarily will have an EIN if you previously paid taxes for employees, either as a household employer or as a sole proprietor of a business you own. If you already have an EIN, use that number. That instruction assumes you already have an EIN as a sole proprietor and are now paying Nanny Tax. It says to use the existing EIN. I assume that reversing the logic would yield the same answer..

OldJack: I'm still interested in your line of thought. The corporation would not incur any penalties because it incurs no tax liability. Income on the 1040 would be essentially the same after all the dust settled. What penalties would/could be assessed? (And how would they compare to the reduction of 15% Self-employment tax?)

Interesting, but I'm not processing this in the same way. In the extremely unlikely event that the auditor classified the distribution as a non-deductible expense of the corporation, what tax preparer would not think of amending the personal return and deleting the Schedule C? IRS can't have it both ways in this situation.

It's an S corporation. There's no issue with dividends or double taxation. That would only come into play with a C corp or in the extremely unlikely event there are retained earnings locked up in the S corp from prior operation as a C corp. And I doubt an auditor would make any adjustment, provided things are handled correctly going forward. But I'd still stay away from any reclassification (either via Schedule C or via retroactive payroll), if it produced EIC.

This could be their letterhead:

I agree. If there were cash distributions, then they can easily and legally be reclassified as payroll by grossing up the figures. But if there were no cash distributions, then there's no basis for just making up figures. But if reworking the figures generates EIC, that might be a land mine. I wouldn't go anywhere near that...

Well, no indictment is necessary. No trial or jury needed either. Any time you break any of the laws of thermodynamics, you skip the trial and go directly to serving the sentence.